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Income Tax Appellate Tribunal, KOLKATA BENCH “B” KOLKATA
Before: Shri Waseem Ahmed & Shri S.S.Viswanethra Ravi
आदेश /O R D E R
PER Waseem Ahmed, Accountant Member:-
This appeal by the Revenue is against the order of Commissioner of Income Tax (Appeals)-XXIV, Kolkata dated 28.03.2013. Assessment was framed by ITO Ward-8(2), Kolkata u/s 154/143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his order dated 17.12.2007 for assessment year 2005-06.
Md. Ghyas Uddin, Ld. Senior Departmental Representative appeared on behalf of Revenue and Shri Ashok Kumar Tulsyan, Ld. Authorized Representative appeared on behalf of assessee.
ITA No.2259/Kol/2013 A.Y.2005-06 ITO Wd-8(2) Kol. vs. M/s Calcutta Medical Imaging Institute Ltd. Page 2 2. At the threshold it is noted that there is a delay of 59 days in filing the appeal by the Revenue. The Revenue has filed condonation petition in this regard stating the reasons that the delay is occurred due to unavoidable circumstances. Ld. AR for the assessee raised no objection for the condonation of delay. This, in our considered opinion after considering the facts and circumstances of the case, condonation petition deserves to be considered and same is condoned and the hearing proceeded with.
First inter-connected issue raised by Revenue in this appeal is that Ld. CIT(A) erred in deleting the disallowance made by Assessing Officer for ₹32,38,637 on account of depreciation. For this, Revenue has raised the following grounds of appeal:- “That the CIT(A) has erred in law as well as in fact in deleting the disallowance of claim of the assessee for depreciation to the tune of Rs.32,38,637/- for F.Y 2004-05 without considering the fact that the machinery was first put to use by the assessee in the month of May, 2005 i.e. beyond the F.Y 2004-05. That the CIT(A) has erred in law as well as in fact in deleting the disallowance of claim of the assessee for depreciation to the tune of Rs.32,38,637/- for F.Y 2004-05 without considering the fact that the assessee constantly tried to establish its false claim by furnishing different dates as the date of installation (such as 12/03/2005 and 14/03/2005).
Facts in brief as culled out from the order of Authorities Below are that the assessee, a Limited Company is engaged in providing diagnostic services. The assessee, during the year under consideration has filed its return of income at Rs. (-) 6,99,410/- dated 26.10.2005. Subsequently the case was selected for scrutiny under CASS module and accordingly notices u/s 143(2) & 142(1) were issued upon assessee. The assessment was framed u/s. 143(3) of the Act at a total income of ₹34,15,988/- after making certain additions / disallowances which are discussed herein below.
The assessee, during the year, has purchased fixed assets (machines) along with its accessories for ₹1,67,00,895/- and claimed depreciation thereon for ₹32,38,637/-. The
ITA No.2259/Kol/2013 A.Y.2005-06 ITO Wd-8(2) Kol. vs. M/s Calcutta Medical Imaging Institute Ltd. Page 3 Assessing Officer during the course of assessment proceeding observed that the installation process for the machine was completed on 14.03.2005 but it functionally started on 03.05.2005. Such observation of the AO was based on the handing/ taking over report given by the machine supplier. The AO further observed that warranty period of the said machine started with effect from 03.05.2005. On question by the AO for disallowing the aforesaid sum on the ground of not putting the machine into use in the year under consideration, the assessee could not make any satisfactory reply. Accordingly, the AO opined that the assessee is not entitled to claim the depreciation allowance in the year under consideration and accordingly disallowed the aforesaid allowance and added back to the total income of assessee.
Aggrieved, assessee preferred an appeal before Ld. CIT(A). It was submitted before the ld. CIT(A) that assessee has purchased the machineries with accessories vide Bill dated 24/12/2004 and 25/12/2004 respectively. The assessee further submitted that the “installation, completion and acceptance report” which has been referred to has been signed on 03-05-06 and on the basis of that the AO arrived at the conclusion that the machine was commercially put to use on and from that date. However, in making such a conclusion, he ignored the remarks put by the authorized signatory in the same report, which reads as under:- “As installation schedule was for 07th March 05 we have lost full 7 days working revenue loss. As there were delay in not hand over of Camera for patient trials.”. This remark was not given cognizance. Again, in the same report, it has been written that installation started on 26-02-05 and the date of installation of machine was 14-03-05. We also enclosed herewith the copy of the said installation report for your kind perusal.
Again, a letter from Wipro GE Health Care dt. 17-12-07 is also enclosed herewith which mentioned that the unit was completely installed in all respects on 14-03-05.
During the course of assessment the assessee also filed a letter dt. 17-12-07 explaining why depreciation on the Gamma camera should be allowed. The copy of the letter is enclosed.
The AO also did not make any comment on the bills received as payment for customers and made a remark that “no test can be carried out for commercial purpose by accepting fees from customers, with an equipment under trial.”
ITA No.2259/Kol/2013 A.Y.2005-06 ITO Wd-8(2) Kol. vs. M/s Calcutta Medical Imaging Institute Ltd. Page 4 Such comment is uncalled for and reveals the biased of the AO in disallowing the claim of depreciation.”
Considering the facts and circumstances, Ld. CIT(A) deleted the addition made by AO by observing as under:- “2.3 I have carefully considered the observation of the Assessing Officer in the assessment order and also the submission of the Ld. A/R. In the present case, the appellant company has purchased Gamma Camera for Rs.1,64,27,449/- along with accessories for Rs.2,73,446/- M/s Wipro GE Medical Systems Pvt. Ltd. has confirmed vide its letter dated 17.12.2007 that the installation of the unit was completed on 14.03.2005 and handed over to the appellant for normal patient scans. However, the AO is of the view that the installation of the unit was completed on 03.05.2006 as the installation completion and acceptance report was signed on 05.05.2005 and the warranty for the unit expired on 03.05.2006. Accordingly, the AO did not allow the depreciation on the said unit. The Ld. A/R explained that in the said installation completion and acceptance report, the appellant has made the following remark:- ‘As Installation schedule was for 7th March 05, we have lost full 7 days working Revenue loss. As there were delay in hand over of Camera for patient trials.’
The Ld. A/R has also explained that as per the said report, the installation started on 26.02.2005 and completed on 14.03.2005. The Ld. A/R has also clarified that the machine was put to use during the F.Y 2004-05. The Ld. A/R has also relied on the decision of the Hon'ble Delhi High Court in the case of National Thermal Power Corporation Vs. CIT ITR No. 43-44/1998 (Date of Decision ; 15/10/2012) wherein it has been held that the machines kept ready for use, though not used would be eligible for depreciation. Considering the facts, I am of the opinion that the installation of the unit was completed on 14/03/2005 and it was also put to use during F.Y 2004-05. Accordingly, the AO is directed to allow depreciation on the said unit. This ground of appeal is allowed.”
Being aggrieved by this order of Ld. CIT(A) Revenue is in appeal before us.
Ld. DR before us submitted that as per service report the machine was handed over for its commercial use on 03.03.2005 and besides the warranty of machine began from the same date. Therefore the depreciation should not be allowed. In this connection, he relied in the following judgments:- 1) Sponge Iron India Ltd. v. DCIT (2010) 40 SOT 139 (Hyd)
ITA No.2259/Kol/2013 A.Y.2005-06 ITO Wd-8(2) Kol. vs. M/s Calcutta Medical Imaging Institute Ltd. Page 5 2) Orient Cosmetics Ltd. v. DCIT (2000) 74 ITD 135 (Mad) 3) CIT vs. Surama Tubes (P) Ltd. (1993) 201 ITR 124 (Cal)
On the other hand, Ld. AR before us filed paper book comprising pages from 1 to 21 and submitted the trial process of the machines started with effect from 15.03.2004. The assessee in support of its claim has submitted the test report for using machine which is placed on page 7 of the paper book. Ld. AR further submitted the machine was ready to use for commercial production after the aforesaid trial run. He also relied on the order of Ld. CIT(A).
We have heard the rival contentions of both the parties and perused the materials available on record. From the aforesaid facts, we find that AO has disallowed the depreciation claimed by assessee on the ground that machine has not been put to use in the year under consideration. However from the submission, we find that machine was ready to use in the year under consideration on 15.03.2004 as evident from the testing report which is placed on page 7 of the paper book. In similar facts and circumstances, several courts have decided this issue in favour of assessee. In holding so we find support from the judgment of Hon’ble High Court of Calcutta in the case of CIT Vs. Union Carbide (I) Ltd. 254 ITR 0488. The relevant extract of the judgment is reproduced below. “Depreciation/Investment allowance—User for business—Trial production— Once it is shown that the assessee has put the machinery to use for the purpose of its business, further enquiry about the degree or type of use is not permitted by the language of s. 32—Once the assessee can establish bona fide use of machinery for the purpose of its business, the assessee establishes its right to claim depreciation—As regards investment allowance, s. 32A inter alia, requires that the machinery or plant in question "is wholly used for the purposes of the business"—It was with the purpose of its business that the assessee used the machinery for trial production—Thus, trial production was quite sufficient to claim both depreciation and investment allowance”
We also find that in course of argument Ld. DR cited two case law out of which one of Hon’ble Tribunals and other is judgment of the Hon’ble jurisdictional High Court which was based on investment allowances u/s 32A and additional depreciation u/s 32
ITA No.2259/Kol/2013 A.Y.2005-06 ITO Wd-8(2) Kol. vs. M/s Calcutta Medical Imaging Institute Ltd. Page 6 of the Act and again it was decided in favour of assessee. In view of the aforesaid facts and respectfully following the various judicial precedents relied upon hereinabove, we find no infirmity in the order passed by the Ld. CIT(A) in this regard and accordingly, the inter-connected issues raised by Revenue is dismissed.
The second issue raised by Revenue in this appeal is that Ld. CIT(A) erred in deleting the disallowance made by Assessing Officer for ₹2,89,436/- and Rs. 30,375/- on account of interested on the borrowed fund and management fees. For this, Revenue has raised the following grounds of appeal:- That the CIT(A) had erred in law as well as in fact in deleting the disallowance of interest on borrowed capital to the tune of Rs.2,89,436/- and management fees to the tune of Rs.30,375/- without considering the fact that the machinery, purchased out of that borrowed fund, was not put to use during the F.Y 2004- 05. That the CIT(A) had erred in law as well as in fact in deleting the disallowance of interest on borrowed capital to the tune of Rs.2,89,436/- and management fees to the tune of Rs.30,375/- without considering the statutory provision of Sec. 36(1)(iii) of the IT Act, 1961 wherein it has been clearly mentioned that interest paid on borrowed capital shall not be allowed for any period from the date on which the capital was borrowed for acquiring asset till the date on which such asset was first put to use.”
The assessee purchased machineries out of borrowed fund and claimed interest expense for ₹2,89,436/- on the borrowed capital by debiting the profit and loss a/c. Similarly, assessee has incurred a sum of ₹30,375/- as management consultation fees in the connection of aforesaid machine by debiting profit and loss a/c. The Assessing Officer during the course of assessment proceeding observed that the installation process for the machine was completed on 14.03.2005 but it functionally started on 03.05.2005. Such observation of the AO was based on the handing/ taking over report given by the machine supplier. The AO further observed that warranty period of the said machines started with effect from 03.05.2005. On question by the AO for disallowing the aforesaid sum on the ground of not putting the machine into use in the year under consideration, the assessee could not make any satisfactory reply. Accordingly, the AO opined that the assessee is not entitled to claim the interest and
ITA No.2259/Kol/2013 A.Y.2005-06 ITO Wd-8(2) Kol. vs. M/s Calcutta Medical Imaging Institute Ltd. Page 7 management consultation fees in the year under consideration and accordingly disallowed the aforesaid expense and added back to the total income of assessee.
Aggrieved, assessee preferred an appeal before Ld. CIT(A). It was submitted by assessee before the ld. CIT(A) that the disallowance was based on the suspicion that the Gamma Camera and the accessories were not put to use during the year under consideration. From the documents submitted under Gr. No.1, it is apparent that the said equipment was undoubtedly put to use on and from 14.03.2005. The suspicion of the AO that the machines were under trial is unfounded and in contradiction to the documentary evidence in respect of the said installation. The acceptance report and the confirmation on behalf of the seller speaks unequivocally that the machine was in workable condition from 14.3.2005 and under no circumstances, it may be said that it was under trial. This is because of the simple reason that no customer would accept the report from under trial machine at reasonably high cost. Such report may be faulty and unacceptable. So, whatever the AO concluded was not based on fact but was on the basis of his surmise and conjecture. It is therefore, prayed that the addition of Rs.3,19,8111/- (interest Rs.2,89,436 + Rs.30,375) may kindly be deleted. Considering the facts and circumstances, Ld. CIT(A) deleted the addition made by AO by observing as under:- “3.3 I have carefully considered the observation of the Assessing Officer in the am order and also the submission of the Ld. A/R. At para 2.3, it has been held that the said unit was installed within 14.03.2005 and also put to use during FY 2004-05. Accordingly, the AO is directed to delete the addition on account of 9i) interest of Rs.2,89,436/- and (ii) management fees of Rs.330,375/- in respect to the said unit. This ground of appeal is allowed.”
Being aggrieved by this order of Ld. CIT(A) Revenue is in appeal before us. Ld. DR before us vehemently supported the order of the AO. On the other hand the ld. AR supported the order of the ld. CIT(A).
We have heard the rival contentions of both the parties and perused the materials available on record. As we have already decided the first ground of appeal of the Revenue in favour of assessee by observing that the impugned machineries
ITA No.2259/Kol/2013 A.Y.2005-06 ITO Wd-8(2) Kol. vs. M/s Calcutta Medical Imaging Institute Ltd. Page 8 were entitled for the depreciation in the year under consideration. Following the same analogy we do not find any reason to interfere in the order of ld. CIT(A) and accordingly, the inter-connected issues raised by Revenue is dismissed.
Next issue raised by Revenue in its appeal is that Ld. CIT(A) erred in deleting the addition made by AO for ₹5,56,950/- on account of expense incurred on repair and maintenance. For this, Revenue has raised following grounds:- “That the CIT(A) had erred in law as well as in fact in deleting the disallowance of claim of the assessee for repair and maintenance to the tune of Rs.5,56,950/- without considering the fact that such expenses was in relation to installation of a capital asset and would fetch long term enduring benefit to the assessee, hence should be treated as capital expenses.
The assessee has incurred repair expense on the building for ₹5,56,950/- which 12. was debited in the profit and loss account of assessee. The AO during the course of assessment proceedings found that the repair expense has been incurred in this connection building / room where the new machinery has to be installed. Therefore, the AO treated the same as capital expenditure and disallowed the same and added to the total income of the assessee.
Aggrieved, assessee preferred an appeal before Ld. CIT(A). The assessee before ld. CIT(A) submitted that the repair expense has been incurred on a rental premises and therefore such expense cannot fetch any long term enduring benefit. The moment, assessee will vacate the premise and all the expenses will have no benefit to assessee. The Ld. CIT(A) considering the same, deleted the addition made by AO by observing as under:- “4.3 I have carefully considered the observation of the Assessing Officer in the assessment order and also the submission of the Ld. A/R. The Ld. A/R has explained that the AO did not take in cognizance of the fact that the premises used by the appellant is a rented premises and as such repairing, paneling cannot fetch any long term enduring benefit to the appellant. The Ld. A/R has also relied on the decision of the Hon'ble Calcutta High Court in the case of CIT vs. J.K. Industries Pvt. Ltd. [1980] 125 ITR 218 (Cal), wherein it has been held that wooden paneling is not an enduring asset. The Ld. A/R has also relied on the decision of the Hon'ble High Court of Delhi in the case of CIT Vs. Hi
ITA No.2259/Kol/2013 A.Y.2005-06 ITO Wd-8(2) Kol. vs. M/s Calcutta Medical Imaging Institute Ltd. Page 9 Line Pins (P) Ltd (2008) 306 ITR 182 wherein it has been held that expenditure on repairs and renovation of rented premises would fall within the expression “repairs to the premises” as appearing in Section 30(a0(i). Considering the facts of the case the A.O is directed to treat the amount of Rs.5,56,950/- as repairs u/s. 30(a)(ia) instead of treating it capital expenditure. This ground of appeal is allowed.”
Being aggrieved by this order of Ld. CIT(A) Revenue is in appeal before us.
Before us both the parties relied on the order of Authorities Below as favourable to them. At the outset, we find that assessee was admittedly running its business from rented premises and repair expenses were incurred in the rented premises only. In such circumstances, various courts have decided this issue in favour of assessee. In holding so we find support from the judgment of Hon’ble jurisdictional High Court in the case of CIT Vs. Dewar’s Garage (I) Pvt. Ltd. 204 ITR 763(Cal). The relevant extract of the judgment is reproduced below. “Business expenditure—Capital vis-à-vis revenue expenditure— Expenditure incurred in repair of rented premises to ward off demolition notice—Allowable as revenue expenditure even if large”
In view of the aforesaid facts and respectfully following the various judicial precedents relied upon hereinabove, we find no infirmity in the order passed by the Ld. CIT(A) in this regard and accordingly, the issue raised by Revenue is dismissed.
The last issue raised by Revenue in this appeal is that ld. CIT(A) erred in directing the AO to allow the unabsorbed depreciation for the AY 1996-97 to be carried forward though it was lawfully allowed till AY 2004-05. For this, Revenue has raised following grounds:- “That the CIT(A) had erred in law as well as in fact in directing to allow the unabsorbed depreciation loss for the AY 1996-97 without considering the fact that the same was supposed to be carried forward for eight years immediately succeeding the AY 3004-05. So the claim to set off loss for A.Y 1996-97 in A.Y 2005-06 was not tenable.”
The AO did not allow the unabsorbed depreciation pertaining to the AY 1996-97 to be carried forward in the year under consideration on the ground that the unabsorbed
ITA No.2259/Kol/2013 A.Y.2005-06 ITO Wd-8(2) Kol. vs. M/s Calcutta Medical Imaging Institute Ltd. Page 10 depreciation can be carried forward only upto 8 AYs which have been lapsed in the assessment year 2004-05.
Aggrieved, assessee preferred an appeal before Ld. CIT(A). The assessee before ld. CIT(A) submitted that unabsorbed depreciation can be set off against any income of the subsequent years. The ld. CIT(A) called for the remand report from the AO on the submission of the assessee but the AO failed to comply the direction of the ld. CIT(A). Accordingly the ld. CIT(A) granted the relief to the assessee by observing as under:- “6.2 I have carefully considered the submission of the Ld A/R. The copies of the appellant’s submission and the Additional Ground of Appeal were forwarded to the AO vide letter No. CIT(A)-XXIV/37(3)/A.No.92/12-13/1338 dated 21.12.2012. The AO has informed vide his letter No. ITO/Wd- 8(2)/Kol/2012-13/Appeal/111 dated 04.01.2013 that he would submit a report within 15 days. However, he has not submitted any report till today. In the case of Jute Corporation of India Ltd., reported in 187 ITR 688, the Hon'ble Supreme Court has held that the appellate authority has all the plenary power which the subordinate authority may have in the matter. There is no good reason to justify the curtailment of the powers of the appellate authority in entertaining the additional grounds of appeal. The AO is directed to allow the claim of the appellant for setting off the unabsorbed depreciations of Rs.60,59,142/- and Rs.30,32,349/- for AY 1996-97 and AY 2004-05 respectively after verifying the correctness of the claims from the returns of income as well as the assessment records in accordance with the provision of Section 32. For statistical purpose, this ground of appeal is allowed.”
Being aggrieved by this order of Ld. CIT(A) Revenue is in appeal before us.
Before us both the parties relied on the order of Authorities Below as favourable to them. At the outset, we find that assessee issue of the assessee is covered in favour of the assessee by the judgment of Hon’ble High Court of Gujarat in the case General Motors India (P) Ltd. Vs. DCIT 354 ITR 244. The relevant operative portion of the said judgment is reproduced below:- “Depreciation—Carry forward and setting off of unabsorbed depreciation— Effect of amendment of Section 32 by Finance Act 2001—Issue was whether unabsorbed depreciation pertaining to A.Y. 1997—98 could be allowed to be carried forward and set off after a period of eight years or it would be governed by Section 32 as amended by Finance Act 2001—Held, Circular
ITA No.2259/Kol/2013 A.Y.2005-06 ITO Wd-8(2) Kol. vs. M/s Calcutta Medical Imaging Institute Ltd. Page 11 No.14 of 2001 clarified that restriction of 8 years for carry forward and set off of unabsorbed depreciation had been dispensed with—Unabsorbed depreciation from A.Y.1997—98 can be carried forward and set off against income of A.Y. 2006—07—Assessee’s appeal allowed. Any unabsorbed depreciation available to an assessee on 1st day of April, 2002 (A.Y. 2002-03) will be dealt with in accordance with the provisions of section 32(2) as amended by Finance Act, 2001 and not by the provisions of section 32(2) as it stood before the said amendment. Had the intention of the Legislature been to allow the unabsorbed depreciation allowance worked out in A.Y. 1997-98 only for eight subsequent assessment years even after the amendment of section 32(2) by Finance Act, 2001 it would have incorporated a provision to that effect. However, it does not contain any such provision. Therefore, the provisions of section 32(2) as amended by Finance Act, 2001 would allow the unabsorbed depreciation allowance available in the A.Y. 1997-98, 1999-2000, 2000-01 and 2001-02 to be carried forward to the succeeding years, and if any unabsorbed depreciation or part thereof could not be set off till the A.Y. 2002-03 then it would be carried forward till the time it is set off against the profits and gains of subsequent years. Current depreciation is deductible in the first place from the income of the business to which it relates. If such depreciation amount is larger than the amount of the profits of that business, then such excess comes for absorption from the profits and gains from any other business or business, if any, carried on by the assessee. If a balance is left even thereafter, that becomes deductible from out of income from any source under any of the other heads of income during that year. In case there is a still balance left over, it is to be treated as unabsorbed depreciation and it is taken to the next succeeding year. Where there is current depreciation for such succeeding year the unabsorbed depreciation is added to the current depreciation for such succeeding year and is deemed as part thereof. If, however, there is no current depreciation for such succeeding year, the unabsorbed depreciation becomes the depreciation allowance for such succeeding year. Thus any unabsorbed depreciation available to an assessee on 1st day of April 2002 (A.Y. 2002-03) will be dealt with in accordance with the provisions of section 32(2) as amended by Finance Act, 2001. And once the Circular No.14 of 2001 clarified that the restriction of 8 years for carry forward and set off of unabsorbed depreciation had been dispensed with, the unabsorbed depreciation from A.Y.1997-98 upto the A.Y.2001-02 got carried forward to the assessment year 2002-03 and became part thereof, it came to be governed by the provisions of section 32(2) as amended by Finance Act, 2001 and were available for carry forward and set off against the profits and gains of subsequent years, without any limit whatsoever. Unabsorbed depreciation from A.Y.1997-98 can be carried forward and set off against income of A.Y. 2006-07”
ITA No.2259/Kol/2013 A.Y.2005-06 ITO Wd-8(2) Kol. vs. M/s Calcutta Medical Imaging Institute Ltd. Page 12 In view of the aforesaid facts and respectfully following the various judicial precedents delineated hereinabove, we find no infirmity in the order passed by the Ld. CIT(A) in this regard and accordingly, the inter-connected issues raised by Revenue is dismissed.
In the result, Revenue’s appeal stands dismissed. Order pronounced in open court on 21/10/2016 Sd/- Sd/- (S.S.Viswanethra Ravi) (Waseem Ahmed) Judicial Member Accountant Member *Dkp Sr.P.S �दनांकः- 21/10/2016 कोलकाता / Kolkata आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. अपीलाथ�/Appellant-ITO Ward-8(2), P-7, Chowringhee Square, Aayakar Bhawan, 5th Floor, Room-11, Kolkata-71 2. ��यथ�/Respondent-M/sCalcutta Medical Imaging InstituteLtd.,54,J.N.Road, Kol-71 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त- अपील / CIT (A) 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण कोलकाता / DR, ITAT, Kolkata 6. गाड� फाइल / Guard file.
By order/आदेश से, /True Copy/ उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, कोलकाता